Principal's managers expect to lay out their game plan in the first half of 2001, addressing, among other things, how the company will shed its policyholder-owned status and be restructured as a stockholder-owned corporation. The company also will detail how shares will be distributed to policyholders. The company will then be subject to regulatory review and meetings with policyholders. Any public offering of stock likely will not happen until at least late 2001 at the earliest, company officials say.

Under a demutualisation, Principal would issue shares to its policyholders for 100 per cent of the value of the company, and then likely sell additional shares through an initial public offering. Vanessa Wilson, an insurance industry analyst at Donaldson Lufkin & Jenrette, New York, says that based on industry comparables, Principal could have an early market capitalization of between $5 billion and $7 billion.

Des Moines', Iowa, president and chief executive officer J Barry Griswell, says that Principal's mutual-insurance holding-company structure, a complex structure that numerous insurers once aimed to adopt, "did not turn out to be as accepted as we thought it would." Thus, in order to tap the equity markets, one of the goals of the mutual holding company setup that Principal adopted in 1998, Principal opted to go with a full demutualisation instead.

Under the hybrid structure, a mutual-insurance holding company always controls at least 50.1 per cent of the stock in the underlying operating business. The holding company, through a separate entity, can tap into the stock market to raise money, but outside investors would never be able to own a majority of the shares.

The structure, adopted by roughly a dozen insurers in the late 1990s, has been widely criticized by policyholder advocates who say the arrangement fails to compensate policyholders adequately for the ownership stake that they could end up relinquishing.

The realignment by Principal, the largest insurer to test the mutual holding-company structure, "is a confirmation that it does not accomplish what the industry hoped for - that is, do a public offering yet retain control by managers and directors," says David Schiff, editor of Schiff's Insurance Observer, an industry newsletter in New York. While the setup was supposed to give companies access to Wall Street through stock offerings, few mutual holding companies actually made it that far. One that did, AmerUS Life Holdings Inc, also of Des Moines, has not been a standout performer. Now, it, too, is going through a demutualisation process.

Griswell says the mutual holding-company arrangement served Principal well. He says it allowed the company to complete its 1999 purchase of BT Australia, the Sydney, Australia, investment-management firm. And, he says, it allowed the company to enter India, Japan and Brazil. But, he says, industry peers never fully adopted the structure, "because it was not uniformly accepted by regulators."

(The Wall Street Journal)